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Understanding the food supply chain

posted Jan 8, 2012, 10:17 PM by Puneet Goyal
Agriculture policies of both India and China would have to cope with the dual challenges of feeding the poor and meeting the rapidly growing needs of the middle-class.

Both China and India, despite their high growth rates, have deprived and vulnerable populations that are susceptible to hunger. While the opening up of the economy to ensure growth is a well established tradition, there is less clarity on what should be the role of the State in providing food and ensuring a functional food supply chain.

Reforms that make agriculture more market-oriented require the replacement of state institutions by more market-based pricing rules. While these new rules might be helpful in reducing unnecessary costs on account of poor administrative action, it would be foolish and short-sighted to entirely dismantle state institutions in agriculture. The challenges of handling the logistics and technological upgradation of the agricultural supply chain are evident in China and India, though they have undertaken very different policies with regard to food procurement and distribution.

The Chinese state has devolved agricultural policy to the district level, with district mayors often sub-contracting provision of food to poorer sections to local government bodies. The move away from a central financial control to a local state-funded system of development was part of a national decision to move away ‘from maximising to minimising the state' devised in the late 1990s. This has resulted in state agencies losing their monopoly position in many areas of agricultural marketing and processing. They are now required to cooperate with enterprises outside the state sector, particularly with private sector players. The localisation of agricultural distribution has led to large variations in provision, with some districts having a far better track record than others.

In the case of India, public agricultural institutions dominate foodgrain procurement and delivery. The intervention by the Indian state in procurement through the minimum support price (MSP) is regarded as a costly and inefficient operation. A manifestation of the squandering of government funds is the manner in which the current procurement levels of 60 million tonnes (mt) of grains is being managed. Only three-fourths of this grain is held in storage with adequate cover, while the remaining 15 mt lie relatively exposed to the elements and to pests.

In India, there has been far more debate about the type of public distribution system (PDS) – especially over the shift from a more comprehensive universal PDS to the narrower version of the so-called Targeted PDS in the late 1990s. On the other hand, there has been a relative neglect of the mid-chain components of storage, as a result of which the logistics of foodgrain movement have remained virtually unchanged.

The Food Security Act, sought to be introduced by the current Government since 2009, has generated considerable debate, culminating in demands for a fundamental restructuring of the final stage of the agricultural supply chain, where food security should be a universal right. But this content also provides a valuable opportunity for revisiting the various capacity constraints in each section of the chain and the evaluation of the cost implications of changing these constraints.

The size and effectiveness of delivery of foodgrains can be deduced from the nature and reliability of the food supply chain. The hasty dismantling of state institutions would not be conducive to bolstering the capacity of the supply chain to improve procurement and delivery. The success of bringing in the private sector is dependent of the operation of a set of government regulations that would operate throughout the chain to ensure minimum standards and technological dynamism.

In the case of China, a large part of procured grain stocks are being diverted towards the creation of a processed foods sector to enhance the production of meat and animal-based products. This will help to diversify the Chinese agricultural product sub-sector that can be subsequently procured through an expanded agricultural supply chain in the future.

In the case of India, the present-day agricultural reforms continue to focus exclusively on procurement and distribution of foodgrains within the framework of the existing agricultural food chain. There has been very limited analysis of how technology can help improve processed food or animal products that will increasingly become the major items of food consumption by the growing middle classes.

Furthermore, the importance of food standards and food safety is still relatively unexplored in the food procurement policy of both India and China and could prove a future threat to the food security of both countries.

The continued importance of feeding the poor and the new challenge of meeting the demands of a rapidly growing middle class will continue to be a concern for national agricultural policy in both countries. The difference is that India still has at least a third of its population in poverty and public institutions are already stretched in trying to ensure food reaches this vulnerable sector.

In China's case, the high levels of industrial growth in the reform period were able to reduce poverty levels by half. The use of the largesse of industrial growth to provide transfers for the poorer sections of rural China was a smaller task.

The challenge ahead for both countries is how they use the agricultural supply chain to deal with the already evident problems of uneven coverage in different districts in each nation, and how they move forward to ensure more and better quality food.

(The author is Lecturer in Development Studies and Fellow of Jesus College at the University of Cambridge.)
(This article was published on January 6, 2012)